Breaking Down The JOBS Act: Inside The Bill That Would Transform American Business

This is perhaps the most contentious piece of the JOBS Act. By introducing a new category of publicly-held companies known as an "emerging growth companies", the bill seeks to exempt businesses with under $1 billion in revenue from certain regulations associated with going public. Notably, companies governed under this category only need to produce two years of audited financial statements when filing for an IPO (normal rules require three years); they are exempted from Dodd-Frank rules giving shareholders a non-binding vote on executive compensation; and are freed from the requirement of hiring an outside auditing firm to check internal financial controls.

For many of the bill's opponents, the most troubling part of the JOBS Act is found in language that frees up ostensibly objective Wall Street analysts to tout the stocks of their investment banking departments' clients.

Here, it may actually be worth taking a look at the bill itself. It prohibits:

... the SEC and any registered national securities association from adopting or maintaining any conflict-of-interest rule or regulation in connection with an initial public offering of the common equity of an emerging growth company that restricts: (1) which associated persons (based on functional role) of a broker, dealer, or member of a national securities association may arrange for communications between a securities analyst and a potential investor; or (2) a securities analyst from participating in any communications with the management of an emerging growth company that is also attended by any other associated person of a broker, dealer, or member of a national securities association whose functional role is other than as a securities analyst.

This section of the bill effectively repeals key parts of Sarbanes-Oxley that were designed to prevent securities analysts from becoming mouthpieces for their investment banking divisions.

Raises Limit of "Regulation A" Offerings From $5 Million to $50 Million

These "mini-public offerings" currently allow companies raising less than $5 million to dodge certain disclosure requirements typically associated with an IPO. The key attraction here is that companies who file under Regulation A do not have to issue the periodic reports to shareholders that are expected of conventional publicly-held companies. The JOBS Act will extend Regulation A exemptions for companies raising up to $50 million.

Allows for General Solicitation in "Regulation D" Offerings

Regulation D (of the Securities Act of 1933) allows companies to avoid costly SEC registration for certain securities offerings. The House bill expands this exemption to allow for general solicitation, meaning that companies and their brokers can advertise the merits of their stock to the general public. While only accredited individuals can invest in Regulation D securities, critics balk at the thought of giving brokers any room to aggressively solicit securities to unsuspecting investors (i.e. the elderly).

Like most pieces of legislation, the JOBS Act is, in many ways, a regrettable amalgam of loosely related ideas and reforms. Taken separately, many of these proposals are wonderful, and should have been implemented long ago. Others, I'm afraid, dubiously ride the coattails of a worthy intention: expanding access to capital for growing companies and entrepreneurs. Do the benefits outweigh the risks?